Mechanism
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Participation exemptions generally limit taxation of a parent company (corporation) in its country of organization on income from subsidiaries. This reduction of taxation generally has some limitations as to the nature of income on which is tax is reduced and the minimum level and period of ownership of the subsidiary. Participation exemptions are only relevant in countries which tax companies on their income from sources outside the country.
Some systems (e.g., The Netherlands) provide that dividends from a subsidiary meeting the minimum ownership requirements is wholly exempt from taxation. Some systems provide a partial exemption. A few extend this treatment to interest or other forms of participation.
Most systems require that the parent company must own some significant portion (e.g., 25 percent) of the equity of the subsidiary in order to qualify for participation exemption. In addition, most systems require that this ownership either have already continued for a minimum period at the time the income is received or continue beyond the date of such receipt until the minimum period is reached. The minimum ownership period is often one year.
A few systems require an advance ruling by tax authorities in order to benefit from participation exemption. This requirement, however, is becoming less prevalent.
Read more about this topic: Participation Exemption
Famous quotes containing the word mechanism:
“The two elements the traveler first captures in the big city are extrahuman architecture and furious rhythm. Geometry and anguish. At first glance, the rhythm may be confused with gaiety, but when you look more closely at the mechanism of social life and the painful slavery of both men and machines, you see that it is nothing but a kind of typical, empty anguish that makes even crime and gangs forgivable means of escape.”
—Federico García Lorca (1898–1936)
“Life is an offensive, directed against the repetitious mechanism of the Universe.”
—Alfred North Whitehead (1861–1947)
“A mechanism of some kind stands between us and almost every act of our lives.”
—Sarah Patton Boyle, U.S. civil rights activist and author. The Desegregated Heart, part 3, ch. 2 (1962)